Sunday, August 20, 2006

CNET on HP and Dell

CNET had a reporter's roundtable on the problems in Dell and the apparent rebirth of HP since Carly Fiorina was dumped. They had a couple of conclusions - after a reasonable period of time the HP-Compaq deal was not really all that great. Their conclusion - HP overpaid for a company that was basically failing. They got nothing for the deal - they bought some additions to the server business - although what they got was into the server market that is increasingly commoditized. The opportunity cost was failing to pick up the consulting business that was almost laid in their laps. All of those conclusions (and the recognition that HP had a good printer business) were things that opponents of Carly suggested at the time of the merger.

Dell has had a series of problems this year based on a bit of arrogance and then also because of a couple of problems like the battery recall. And indeed their problems are some of the same things that critics of the merger suggested for anyone in the commodity side of the PC business would face. When you sell boxes that are fundamentally vanilla and based almost solely on price the chance of making a big advance are limited - to make the profit one needs to trim the supply chain (which Dell did and HP at the time did not, even with the Compaq addition which was better). Walter Hewlett argued at the time that HP's primary business which was printers was one where they could make a good profit because unlike the PC, printers require constant refurbishment of supplies. With some maintenance of a PC business including a reasonable server business and the consulting (which Carly ignored) HP could have been a very profitable business. Compaq added weight not flexibility.

One should note that "since Fiorina's departure from HP, HP stock has approximately doubled in value and employee confidence is back in force under the direction of Mark Hurd. In 2006, as part of what some see as a de-merger process, many of the original Compaq services have been outsourced." (Wikipedia) Thanks again Carly.

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